Reinaldo & Ernestina Moracen - Page 5




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          penalty.3  Petitioners filed a timely petition for review of                
          respondent’s determination.                                                 
               In February 2006, petitioner filed suit against her father             
          and Mr. Falcon in United States District Court alleging that they           
          “fraudulently and unlawfully converted the proceeds” of the                 
          annuity contract.  The complaint states in part:  (1) Mr. Falcon            
          told petitioner that the annuity proceeds, in fact, belonged to             
          Mr. Knight; (2) Mr. Falcon instructed petitioner to write the               
          check for $415,000 in order to return the proceeds to Mr. Knight;           
          and (3) petitioner did not know she was a beneficiary of the                
          annuity contract until respondent began examining petitioners’              
          2003 tax return.                                                            
                                     Discussion                                       
               In general, the Commissioner’s determinations set forth in a           
          notice of deficiency are presumed correct, and the taxpayer bears           
          the burden of showing that the determinations are in error.  Rule           
          142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).  Pursuant             
          to section 7491(a), the burden of proof as to factual matters               
          shifts to the Commissioner under certain circumstances.                     
          Petitioners have neither alleged that section 7491(a) applies nor           
          established their compliance with the requirements of section               
          7491(a)(2)(A) and (B) to substantiate items, maintain records,              

               3 We assume the difference between the $53,886 taxable                 
          amount shown on the information return and the $53,885 listed in            
          the notice of deficiency is due to rounding.                                






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